[March 28, 2014](Reuters) — A prolonged drought in
California could lead to ratings downgrades on the state's water and
public power utilities unless they show a willingness to raise prices,
according to a report by Fitch Ratings.

"Ratings could eventually be pressured if the severity and
duration of this drought were to result in sustained (more than
one year) weakness in utility credit quality," Fitch said in a
report on the California drought.

California is experiencing one of the worst droughts on record
and Jerry Brown, its governor, has declared a state of
emergency.

Fitch says water sales are expected to decline due to calls for
conservation. Although water and public power utilities are in a
strong operational and financial position for the next year,
Fitch says, a sustained decline in margins or reserve levels due
to the drought could pressure ratings.

An ability to raise rates will also be key if the drought
persists, Fitch says. "A utility's ability and willingness to
exercise its rate flexibility and recover lost revenues will be
a key rating factor in assessing any impact on ratings," the
report says.